Payroll – how you distribute wages to your employees and withhold the required taxes.
Updated September 26, 2017
If you pay employees, you need payroll. That means you must withhold income, Social Security, and Medicare taxes from employees’ wages, and pay the employer’s share of those Medicare and Social Security, and unemployment taxes.
This may sound simple, but there are a nuances to consider as a business owner.
Are you paying independent contractors?
If you are only paying independent contractors that is not considered payroll because an independent contractor is generally considered self-employed. You simply need a way to get them the funds, like writing them a check or transferring the funds electronically. Correctly determining if someone is an independent contractor is very important. More information regarding an employee vs. independent contractor can be found in IRS guidance here.
Are you paying yourself as an employee?
Depending on the type of business entity (such as a C Corporation, or S Corporation) you may be required to give yourself a salary as an employee, or you may not be considered an employee of your business.
Federal rules affect whether a worker is classified as an employee or independent contractor, and whether you withhold payroll taxes. But it’s always a good idea to consult a tax advisor if you have questions.